Secured Business Loans
Are you looking to develop an existing business or fund a new start-up? A secured business loan could raise quick funds due to the nature of this form of finance.
Generally, lenders prefer low-risk loan scenarios. For that reason, having a loan secured against an asset improves your chances of a successful application.
Secured business loans fund all types of asset buying, including premises, plant and machinery, technology, working capital or the purchase of materials as stock. There are also many specialist lenders other than banks that could provide instant cash for businesses. However, there may be additional fees involved, and the interest rates could be higher.
What are Secured Loans?
In all cases, loans are secured or unsecured, and this is the same for business loans. If you have a limited company, then the loan or mortgage has a charge over the asset. For mortgages, most likely it's a first charge. If the loan defaults in any way, the finance company can sell the asset and recover their debt.
Unsecured loans have no charge against them. Because the default risk is higher on these loans, the interest rates lenders charge are more expensive. If you look in the marketplace, secured loans are often about half the interest rate of an unsecured loan.
Interest rates are also higher if you or your business has a bad credit rating. However, it's always worth checking out all the lenders to see what's available for your needs. Often companies need short-term loans to cover changes in working capital for just a few weeks or months.
Applying for Business Loans
Credit Checks and Ratings
As with a personal loan, a business has credit checks made for each application made. Therefore, it's wise to apply to just a couple of lenders who have the types of products you require. Don't apply for multiple secured loans just because you can.
This scatter-gun approach will generally negatively affect your credit rating. It's prudent to approach your bank in the first instance to see what they can offer in terms of interest rates and payback periods.
Lowering Interest Rates
As with most things, you can negotiate loan rates, especially if you have a good credit history and don't have a poor or bad credit rating. You can negotiate both the actual interest rate and the amount required for your venture with your bank.
Unless you've had loans before, you'll likely need to present an up to date business plan to your small business adviser at the bank. Your document must show just how you can repay the loan and that the risk to the lender is as low as possible.
All secured or unsecured business loans with limited companies become secured against the company rather than an individual such as a shareholder or director. There are specific director responsibilities to bear in mind for limited companies.
Sole Trader Loans
Normally, if you're funding the purchase of a new asset, then a charge is made on the asset itself. However, if you have a poor credit rating, a charge may be asked to be made against your home. Just watch out for the terms and conditions applied when signing a contract.